Oriflame sales rise but profits hit by higher costs

By Simon Pitman

- Last updated on GMT

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Direct sales player Oriflame has announced a healthy increase in its quarterly and full year sales, but the results indicate that profit is tailing off against rising costs.

The Luxembourg-based company said that sales for the fourth quarter ending 31 December rose by 15 per cent to reach €394.4m, whereas net profits before costs fell 10.7 per cent to €39.3m.

For the full year 2008 sales grew by 20 percent to €1.33bn, whereas net profit before restructuring costs was up 15 percent €133.1m.

2008 was best year ever, but 2009 will be tougher

“With a sales growth of 16 per cent and operating margins of 16.7 per cent in the fourth quarter, Oriflame concludes the best year ever,”​ said CEO Magnus Brännström.

“With a sales force of nearly 3 million consultants, we have great confidence in our business and in our long term goals of around 10 per cent sales growth in local currency annually and 15 per cent operating margin.”

Breaking sales down into product categories, colour cosmetics came in at 26 per cent of the total, skin care was 25 per cent and both the personal hair care and fragrance categories were 20 per cent and accessories and wellness was 9 per cent.

Of these categories fragrances saw the fastest sales growth in 2008 at 30 per cent, whereas skin care grew by 23 per cent, colour cosmetic grew by 17 per cent and skin care sales grew by 14 per cent.

CIS region is the winner!

On a geographic basis, Euro sales for the full year were up 23 per cent in the CIS and Baltic region to €241m, Central Europe and Mediterranean decreased slightly from €79.6m in 2007 to €79.4m, Western European sales increased 1 per cent to €29.3m and sales in Latin America increased 8 per cent to €15.2m.

Overall the sales results are a triumph for the company, particularly in view of the tougher economic conditions that have taken hold.

However, the fact that net profit growth has been impacted significantly in the fourth quarter is a sign of the tougher conditions the company is facing, both with respect to retail pricing and cost management.

Outlook factors in economic downturn

These more challenging conditions are reflected in the company’s outlook for the financial year ahead, with the forecasts indicating a more subdued year ahead.

Accordingly, the company is predicting sales growth of 10 per cent, meaning around €1.46bn in local currencies in 2009.

But more worrying than the lower sales growth forecasts is the fact that currency exchange is likely to make a big impact on operating margins, which are predicted to fall from 14.1 per cent (€187.3m) to approximately 11 per cent in 2009.

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